Final answer:
The most significant problem for internal audit if the chief audit executive reports to the controller is the controller's ability to control the scope of audits and censor audit reports.
Step-by-step explanation:
The correct answer is option O: the controller can control the scope of audits and censor audit reports before being sent to management and the audit committee.
If the chief audit executive reports to the controller, it could create a significant problem for internal audit. The controller has the authority to manipulate the audit schedule to focus more on accounting issues, potentially neglecting other important areas.
Furthermore, the controller can determine the scope of audits and censor audit reports, creating a conflict of interest and compromising the independence of internal audit.
The correct answer is option "the controller can control the scope of audits and censor audit reports before being sent to management and the audit committee." This represents the most significant problem because it deals with the potential for significant conflicts of interest and undermining the independence of the internal audit function.
Internal auditors need to have the freedom to report findings without fear of censorship or alteration, as their role is to provide objective assessments of an organization's financial and operational activities.
If the chief audit executive reports to the controller, there is a risk that the controller may influence audit activities or manipulate findings to protect their interests or the interests of the accounting function they oversee, which could lead to undetected mismanagement or even criminal behavior.